Trade Whisperer@TradexWhisperer
So what's up with Micron Technology $MU? Why did so many analysts lower the price targets but still rated it as Bullish? A bit contradicting isn't it? Well, here's the answer.
The DRAM spot prices have been mostly flat. The 'recovery' didn't come as soon as they initially thought. They are humans too and got euphoric too early. Remember, many predicted the rates to happen earlier this year instead of last week. The rates have a lot of influence to cyclicals.
There is also this thing called DRAM contract prices which is different from spot prices. Contracts as the name implies, is an agreement between Micron and the buyer. These contract prices have actually gone up 5-10% which is bullish for Micron for near term BUT.. the next wave of contracts might be neutral as spot prices has been mostly flat, a good indicator for DRAM demand. So why do companies make contracts? Two reasons: it's more predictable in their balance sheet which in turn is acts as a hedge against unexpected DRAM price fluctuations. My suspicion is that the contract prices got inflated early this year due to the whole AI and Rate Cut euphoria and companies rushed in to make DRAM contracts before it goes up 'too much'
So while DRAM contracts may not be a problem for Q4 (Weds), it's an uncertainty for Q1/Q2 2025. The recovery is on its way but the rate cuts didn't happen until just a week ago. I don't know how fast the the benefits of rate cuts will materialize to DRAM prices.
So what else can $MU do? Answer: SHIP a TON of HBM (Super Fast AI Memory) to $NVDA, $AMD and $AVGO. In Q3 Micron made about $100M in HBM sales. I am expecting about $200-300M in Q4 HBM sales and I am guessing $400-500M for Q1 2025. HBM is orders of magnitude more expensive than DRAM and its highly margin accreditive (it adds shit ton of earnings per share). They are expecting billions for 2025 and having more than $NVDA as its customer base will help to re-negotiate the prices to a more premium (10% more in 2025). Furthermore, over the last 2 quarters, Micron has been making huge improvements on HBM wafer yields (as all semi companies do over time) and this will add extra margin to their dollars.
The market reaction will be all about guidance. The double beat is a requirement. It's already baked in. So IF Micron is able to surprise the market with a huge HBM sales guidance for the next a couple of quarters, market could react positively. I think elevated DRAM contract prices will not come until 2nd half of 2025.
Neutral DRAM + Bullish HBM could move the needle.
On our charts, $MU is still BLUE candled, meaning its bullish cycle remains intact. Remember playing earnings can be nerve-wracking even if you have a high conviction. I am long in $MU, we are not selling until DRAM prices have fully recovered.
